Marketing Theory

http://mtq.sagepub.com The relevance of judgment and decision making research for marketing: Introduction to the special issue
Nicola J. Bown Marketing Theory 2007; 7; 5 DOI: 10.1177/1470593107073841 The online version of this article can be found at: http://mtq.sagepub.com/cgi/content/abstract/7/1/5

Published by:
http://www.sagepublications.com

Additional services and information for Marketing Theory can be found at: Email Alerts: http://mtq.sagepub.com/cgi/alerts Subscriptions: http://mtq.sagepub.com/subscriptions Reprints: http://www.sagepub.com/journalsReprints.nav Permissions: http://www.sagepub.com/journalsPermissions.nav

Downloaded from http://mtq.sagepub.com by Nanang Suryadi on September 28, 2007 2007 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution.

Volume 7(1): 511 Copyright 2007 SAGE www.sagepublications.com DOI: 10.1177/1470593107073841

editorial

The relevance of judgment and decision making research for marketing: Introduction to the special issue
Nicola J. Bown
University of Leeds, UK

Abstract. Research in judgment and decision making (JDM) endeavors to account for the way individuals make complex decisions, such as those consumers make in the marketplace. This complexity is created by the number of options available, the numerous attributes on which options can be evaluated, and the difficulty of making tradeoffs between these attributes. This article addresses some of the strategies, both functional and dysfunctional, that people adopt to cope with this complexity. It goes on to describe the most recent contributions of JDM researchers to the practice and theory of marketing. Key Words consumer choice decision complexity judgment and decision-making trade-off difficulty

Judgment and decision making (JDM) research has a great capacity to influence marketing theory and practice, and interest in the reciprocal relationship between the two fields is growing. Indeed, Simonson et al. (2001) identify the rise of behavioral decision theory in consumer research as one of the major developments in this field in recent decades. In this special issue, we bring together a number of articles from active researchers in the JDM field that demonstrate novel applications of their work to the area of marketing and consumer behavior. We hope to support cross-fertilization of ideas, stimulate theory development and encourage a continuing dialogue between researchers and practitioners in the two domains. Historically, studies of JDM in marketing have reflected the way science in general develops: first, phenomena are observed and documented, and then theoretical explanations are sought to account for them. A common theme for early research was the way consumers violated principles of rational choice such as invariance (the choices people make should not change when the alternatives are described differently), exponential discounting (the rate at which outcomes are discounted with increasing delay should not change as the delay increases) and

5
Downloaded from http://mtq.sagepub.com by Nanang Suryadi on September 28, 2007 2007 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution.

marketing theory 7(1) editorial

Bayesian updating (new information should be incorporated into our beliefs using Bayes rule). Once violations of these principles were shown to be reliable, researchers set out to achieve a better theoretical understanding of the factors that influence the construction of preferences in consumer contexts. A major inspiration for the rise in the popularity of behavioral decision theory in consumer research was James Bettmans (1979) book, An Information Processing Theory of Consumer Choice. Drawing on insights from the cognitive science revolution (see Gardner, 1985), Bettman described how information inputs are processed by the consumer in order to reach a decision. Amongst other things, he emphasized the role of short- and long-term memory, decision rules and heuristics (cognitive rules of thumb). The articles in this special issue are further developments of this approach. The articles both describe new examples of substantive JDM phenomena in a marketing context and offer theoretical accounts for such effects. In this introduction, I outline major JDM themes that contribute to our understanding of how consumers act, and introduce the articles of the special issue in the context of these themes. Perhaps the most important theme of research into consumer choice is decision complexity, the sources of which include the abundance of available options, the many attributes by which those options are defined, and the difficulty of making trade-offs between these attributes. While people want more choice (Bown et al., 2003), Schwartz (2004) argues that too much choice can be detrimental, and that limiting the number of options available may actually increase the utility derived from choosing. Some manufacturers have learned this lesson, streamlined their ranges, and reaped the benefits. Proctor and Gamble, for example, reduced their Head and Shoulders range from 26 to 15 products, and earned a ten per cent increase in sales (Schwartz, 2000). Nonetheless, this range reduction has not made choices effortless, and even a simple decision like buying a jar of coffee can be overwhelming: for example one online supermarket offers 98 different coffee products, ranging from instant coffee granules to espresso coffee beans. The customer must decide not only what kind of coffee to choose, but also decide on features such as the coffees strength, the size of the jar, its place of origin and whether to spend a little more on a fair trade product. Despite this complexity, however, few consumers spend more than a moment or two when they decide which coffee to buy. Because this isnt enough time for them to explicitly compute the importance of each option, they must be doing something else. It turns out that when making complex decision, such as those with multiple alternatives or numerous attributes, or when under time pressure, people simplify the task and ignore a lot of information. One kind of simplification is to switch from compensatory to non-compensatory decision strategies. That is, rather than evaluating all options of a choice set on all the appropriatelyweighted criteria and allowing a high score on one criteria to compensate for a low score on another, people tend to rely on strategies where a high score on one criteria cannot compensate for a low score on another. Non-compensatory decision categories rely on the use of heuristics, which are cognitive rules of thumb that help simplify the decision.

6
Downloaded from http://mtq.sagepub.com by Nanang Suryadi on September 28, 2007 2007 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution.

Introduction Nicola J. Bown

One non-compensatory strategy is elimination-by-aspects (EBA) (Tversky, 1972). In this strategy, consumers consider options attribute-by-attribute, starting with the most important attribute, and eliminate options that do not meet a standard. To illustrate, imagine that price is the most important attribute for a consumer, and coffee strength the second most important. They might reject all coffees costing more than 2.00, and if more than one remains, then reject all coffees with a strength less than three. Once that is done, if there are still more coffees in the running they will choose another attribute level and continue the process until only one coffee remains. This process is cognitively simple because the decision maker only considers a subset of attributes and never has to make explicit tradeoffs among them. Of course, the process also neglects a lot of information and might make apparently arbitrary choices, such as ruling out a coffee that costs $6.05 but tastes ten times as good. One important question, therefore, is how much of a problem is this departure from optimal decision making? In this issue, Barbara Fasolo, Gary McClelland and Peter Todds article Escaping the tyranny of choice: when fewer attributes makes choice easier explores the relationship between the number of attributes attended to and the goodness of the decision. They define goodness as the extent to which it reflects the choice that would be made using a comprehensive compensatory strategy. They find that, if all attributes are positively correlated (that is, a good score on one attribute is related to a good score on other attributes, for example, picture resolution and weight of a digital camera), and if some attributes are more important than others, then reducing the complexity of the decision by taking into account only the minimum number of attributes does not make the ultimate choice worse. Although simplification strategies like these, where options are considered on an attribute-by-attribute basis, might be ideal when all the choices are viewed simultaneously (as on a supermarket shelf, and sometimes on web pages), a different strategy might be required when options are presented sequentially or unpredictably and the choice set is shrinking with delay, such as when looking for a new home. In this case, one way to simplify a complex decision is to satisfice (Simon, 1955), which means trying to find a good enough option rather than the best. For example, our coffee drinker may have set the aspiration level for the main attributes of his coffee as: (a) coming from Latin America; and (b) being dark roast. The first coffee he comes across that satisfies these criteria is selected. It may not be the best coffee for the consumers needs, but it is satisfactory. Although considering only a subset of information will always mean a risk of overlooking something important, decision heuristics (cognitive short cuts) such as satisficing and EBA allow a consumer to make a choice based on some (if not all) of their important criteria and hence generally reflect their actual subjective preference. In other words, they can be highly functional. Other heuristics, however, can cause them to violate the rules of rational decision making or choose something that does not reflect their true preferences. For example, buyer behaviour can be influenced by how easy it is to justify the choice being made (Shafir et al., 1993). For instance, a person might select a particular DVD player, not because it is the best one for her needs, but because she feels better able to justify the

7
Downloaded from http://mtq.sagepub.com by Nanang Suryadi on September 28, 2007 2007 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution.

marketing theory 7(1) editorial

purchase because it came with a free DVD as part of a special promotion. This can lead to inconsistencies in choices, because the choice context determines what justifications are possible. Jason Boothe, Janet Schwartz and Gretchen Chapman describe an effect where relatively unimportant information has undue influence in Preference reversals resulting from a market value heuristic. In this article, participants were offered pairs of consumer goods (either food items or hygiene products) that varied in objective value and desirability (e.g. a jar of sardines and a granola bar). One group chose between items, another group priced them. When participants were asked to choose an option, most opted for the lower value, but more desirable product. However, preferences were reversed when they were asked to assign prices to each option. The authors argue that when people are unsure about how to translate their choice preferences into a cash amount, they rely on a market-value heuristic to decide on their price. They point out that if Manufacturers Suggested Retail Prices (MSRP) are set at a high price, consumers will come to use it when assigning a subjective value to the product which might ultimately influence consumption preferences. Other aspects of the choice context can also influence decisions. Two effects especially relevant to marketing are the attraction effect and compromise effects. The attraction effect occurs when a new option added to a choice set, which is clearly inferior to one of the existing options, makes that original option more desirable. For example, the manufacturer Williams-Sonoma once offered a breadmaker priced at $275. Initially sales were satisfactory, but not particularly remarkable. However, Williams-Sonoma later offered a second breadmaker that was much larger and much more expensive than the first. While the new model did not sell very well, adding it to the product line almost doubled the sales of the original one, which now seemed to be a bargain (Kardes, 2002). Secondly, the compromise effect occurs when the likelihood of buying a higher price, higher quality item can be enhanced by introducing an even higher price, higher quality item to the consideration set, thus making the originally high-priced item a compromise (Simonson, 1999). This is appealing to many consumers, and as discussed above, can give them a valid justification for their selection. A host of such context effects have been described, but previously no comprehensive theory has been proposed to explain them all. We are fortunate in publishing such a theory in this special issue. In Context effects and models of preferential choice: implications for consumer behavior, Jerome Busemeyer, Rachel Barkan, Shailendra Mehta and Alok Chaturvedi review and evaluate a number of different theoretical accounts of context effects to determine which one is best. The overall winner appears to be the decision field theory (Busemeyer and Townsend, 1993) which can satisfactorily account for all four context effects. The authors go on to explain how the assumptions that are made about the decision maker and their decision process on which the models are based, can be matched to different consumer contexts. For example, in some situations the value of options is unambiguous, while in others it is not. Furthermore, some consumer decisions are made under time pressure, whereas others allow for more detailed

8
Downloaded from http://mtq.sagepub.com by Nanang Suryadi on September 28, 2007 2007 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution.

Introduction Nicola J. Bown

consideration of the available options and relevant criteria. The authors conclude that the different models discussed may be useful when matched with differing consumer contexts that vary in respect of products, consumers characteristics and the evaluation process. As if choosing for the here and now isnt complex enough, we often have to make choices regarding our future consumption. The temporal aspect of choice adds another layer of complexity to consumers delicately balanced deliberations. In his article Time and the marketplace, Daniel Read considers a wide range of evidence from psychology and economics that examines dynamic inconsistency and applies this knowledge to the world of marketing. Particular attention is focused on the way in which consumers are more attracted to choices where the benefit is small, but immediate and later followed by larger costs (called vices) than choices where the benefit is larger, but comes later, with smaller, earlier associated costs (virtues). He argues that an understanding of dynamic inconsistency is crucial to predicting and servicing the needs and wants of consumers. Sandra Jones also considers dynamic inconsistency in her article Implications of behavioral decision theory for health marketing. In one study she found that under conditions of certainty, most participants chose a delayed, more beneficial option for both gains (health benefits from using an exercise machine) and losses (health damage from smoking a brand of cigarette) over less impressive, but relatively immediate results. Under conditions of uncertainty, however, this preference was eliminated for the loss scenario (cigarettes that might lead to severe lung damage in the long-term were just as popular as those which might cause mild throat irritation immediately). There are important health implications in terms of these temporal preferences as many of our lifestyle choices (diet, activity and so on) have long-term, uncertain outcomes. Goods vary not only in whether they will be consumed now or in the future, but also in terms of the quantities in which they are marketed for consumption. For example, with price-bundled consumer goods (those that are purchased as a package) a common finding is that integrating costs tends to lead to increased purchasing but decreased consumption over time (see for example, Gourville and Soman, 1998). Furthermore, consumption diminishes when costs significantly precede benefits. In a second study, Jones demonstrates the effects of price bundling in gym membership and usage. She found that patrons who paid upfront for a 12-month gym membership used the facilities significantly less than those who paid by fortnightly installments. The up-front payment de-couples the monetary cost of the visits from the psychological costs of missed visits. The practical application of JDM research to specific marketing issues is also explored in Elina Jaakkolas article Purchase decision-making within professional consumer services: organizational or consumer buying behaviour? She compares and contrasts basic assumptions and constructs that have evolved largely independently in these two domains of decision making, and applies her findings to the specialized field of professional service providers. Professional service providers are those such as doctors who prescribe a drug for a patient, or an architect selecting ceiling material for a client. The kind of choices faced by these

9
Downloaded from http://mtq.sagepub.com by Nanang Suryadi on September 28, 2007 2007 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution.

marketing theory 7(1) editorial

decision-makers share features of both consumer and organizational decision making. Jaakkola discusses the nature of the relationship between the decision making process for the professional agent, including elements of the decision task and nature of the decision making, and outlines a theoretical framework which provides a number of testable empirical predictions. In conclusion, the choices that consumers face are not straightforward they are often complex and multi-faceted. Deliberation between options is exceedingly difficult because of the number of options available, emotional conflicts, time pressure, limited information processing capabilities, the undue influence of the choice context and the general effort required to make a decision. People often adopt simplification strategies to cope with such complexity. In many circumstances these function perfectly well, and allow us to cope with our everyday decisions, but sometimes can result in decisions that are different to what would have been chosen if the person had the cognitive capabilities to process all the available information. In a nutshell, subjective preference is prone to context effects, and therefore our choices are sometimes inconsistent. If these deviations from rational decision making are predictable, it should mean that they are preventable. They interest decision scientists from a theoretical point of view. They should also interest marketers from a practical point of view. The authors in this special issue bring new insights to each element of complexity, while also offering direct application of the theory in a marketing context. Their contributions enhance the relationship between decision making research and marketing theory.

References
Bettman, J.R. (1979) An Information Processing Theory of Consumer Choice. Reading, MA: Addison Wiley. Bown, N.J., Read, D. and Summers, B. (2003) The Lure of Choice, Journal of Behavioral Decision Making 16(4): 297308. Busemeyer, J.R. and Townsend, J.T. (1993) Decision Field Theory: A Dynamic Cognitive Approach to Decision Making in an Uncertain Environment, Psychological Review 100(3): 43259. Gardner, H. (1985) The Minds New Science: A History of the Cognitive Revolution. New York: Basic Books Inc. Gourville, J.T. and Soman, D. (1998) Payment Depreciation: The Behavioral Effects of Temporally Separating Payments from Consumption, Journal of Consumer Research 25(2): 16074. Kardes, F.R. (2002) Consumer Behavior and Managerial Decision Making. Upper Saddle River, NJ: Pearson Prentice Hall. Schwartz, B. (2000) Self-determination The Tyranny of Freedom, American Psychologist 55(1): 7988. Schwartz, B. (2004) The Paradox of Choice. New York: Harper Collins. Shafir, E., Simonson, I. and Tversky, A. (1993) Reason-based Choice, Cognition 49(12): 1136. Simon, H.A. (1955) A Behavioral Model of Rational Choice, Quarterly Journal of Economics 69: 99118.

10
Downloaded from http://mtq.sagepub.com by Nanang Suryadi on September 28, 2007 2007 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution.

Introduction Nicola J. Bown

Simonson, I. (1999) The Effect of Product Assortment on Buyer Preferences, Journal of Retailing 75(3): 34770. Simonson, I., Carmon, Z., Dhar, R., Drolet, A. and Nowlis, S.M. (2001) Consumer Research: In Search of Identity, Annual Review of Psychology 52: 24975. Tversky, A. (1972) Elimination by Aspects: A Theory of Choice, Psychological Review 79(4): 28199.

Nicola J. Bown is Lecturer in Organizational Psychology at the Centre for Decision Research, Leeds University Business School. Her research interests focus on the application of psychological theory in organizational contexts. In particular, she has examined the effects of increased choice on individual decision making, mental representations of strategic decision making under conditions of risk and uncertainty and the relationship between personal and social identity and behaviour at work. Address: Leeds University Business School, The University of Leeds, Leeds, LS2 9JT, UK. [email: njb@lubs.leeds.ac.uk]

11
Downloaded from http://mtq.sagepub.com by Nanang Suryadi on September 28, 2007 2007 SAGE Publications. All rights reserved. Not for commercial use or unauthorized distribution.